"Grandfathering" Proposal Comes Under Fire

April 6, 2005--An overwhelming number of small business owners and groups are opposed to allowing big businesses to be classified in a way that they can bid for government contracts reserved for small businesses, said the National Federation of Independent Businesses (NFIB).

Over 5,000 small business owners and groups have told the U.S. Small Business Administration (SBA) that they feel the "grandfathering" proposal leads big businesses to take away contracts from them, said NFIB.

The "grandfathering" proposal from the SBA would allow big companies to keep their existing small-business contracts, even if size standards were reduced in the future.

The SBA had put forward and later withdrawn a proposal to change the size standard of a small business back to its pre-1986 definition of 100 employees or fewer. Since 1986, a small business has been defined as one that has 500 or fewer employees.

In December 2004, the SBA suggested the "grandfathering" proposal and called for comments on the proposal.

"We issued an advanced notice for rulemaking that calls for ideas and approaches on how the SBA can restructure and simplify its size standards," said Gary Jackson, assistant administrator (size standards), SBA.

Federal law mandates that 23% of government contracts be awarded to small business, but this is not always the case.

In 2002, the SBA office of advocacy reported that 44 of the top 1,000 small business contractors were not really small businesses. These businesses accounted for $2 billion worth of contracts.

The "grandfathering" proposal is not the only one that the SBA is considering. It is examining 11 issues concerning federal contracts including how to give government agencies more flexibility when dealing with small businesses and how to set standards for contracts that are small business friendly.

NFIB said that it hopes the SBA will simplify some of its existing rules to make it easier for small businesses to bid for government contracts.

"It is hard enough for small businesses to get access to government contracts without having big companies take it away. We hope that the SBA will drop the 'grandfathering' proposal and make the rules friendlier for small businesses," said Andrew Langer, manager, regulatory policy for NFIB.

The SBA said that it has received over 6,000 comments from small businesses about the proposal. The organization is yet to sort through the comments to determine how many are against the proposal.

Once the SBA sorts through the comments it will draft a proposed rule that will be discussed; a final rule will be issued after. The draft proposal is expected to be ready by August and the final rule is likely to be done by next year.

The SBA also has said that it will hold public hearings on the issue later this year.